January 22, 2013 at 11:51 AM EST
Groupon Struggles On and On and
Groupon Struggles On and On and

EmergingGrowth.com, a leading digital financial media company, Reports on Groupon (NASDAQ: GRPN).  Discussion also includes Zynga (NASDAQ: ZNGA), Yahoo! (NASDAQ: YHOO), Amazon (NASDAQ: AMZN) and others.

 

It does not pay to believe your own publicity. Case in point; when Groupon (NASDAQ: GRPN) started trading in November of 2011 its initial public offering was $20 per share. Like Facebook (NASDAQ: FB) it was supposed to be a sure thing.  Analysts were touting social media IPOs as the ‘can’t lose’ investments of 2012 and Groupon was a part of the hype. At the time, the young company was valued at over $13 billion. It was such a greatly anticipated IPO that it initially raised $700 million becoming the largest internet initial public offering since Google (NASDAQ: GOOG) had gone public eight years earlier. Another company which was part of the social media propaganda push, Zynga (NASDAQ: ZNGA), eclipsed that record a little over a month later, raising over $1 billion. The future looked rosy indeed. Social media was all the rage. The stock was sure to go nowhere but up.  But some experts were quietly cautioning investors to quell their enthusiasm and with good reason. It appears the halcyon days of November, 2011 were something of a dream for the deal of the day company. Less than a year later, Groupon, in a stunning turn of events, has garnered the dubious distinction of being branded the worst stock of the 2012 by Forbes. It shares this painful status with another highly anticipated IPO, San Francisco game developer Zynga. How could this happen? What would cause a vaunted sweetheart stock to take such a drastic nosedive in such a short period of time?

 

The problems are innumerable but the simple answer is the company and its stock was decidedly overrated. The business plan, that was once thought to be an innovative model of stability, is not as sound as first believed. In addition to that, the corporation has had a difficult time keeping people in key positions. Sources say that top sales people and a great deal of bright young talent are walking out of the door on a daily basis. Management is also leaving the ailing company in droves. Groupon lost two chief operating officers in 2011. In fact, national sales head, Lee Brown, who came to the company from Yahoo (NASDAQ: YHOO), has left. The company recently hired Sanjay Gupta and Brian Stevens as new high level executives in order to attempt to shore up the downward spiral. Their effectiveness remains to be seen.

 

Groupon has come under attack for spending exorbitant amounts of money on marketing. Some models show that the beleaguered company has spent as much on marketing as it has made in revenue.  Errors in its accounting procedures earlier this year prompted a threat by The Securities and Exchange Commission to investigate the company’s financial practices. The announcement caused a 17 percent drop in price of shares in early April, down to $15.27. In May stock had fallen to $10.00 a share. By June it had dropped to below $9.00. The stock has lost an astounding 75 percent of its value in less than a year.  As of today the market value is $5.05.The poor performance does not paint an attractive picture for shareholders. Groupon has also decided to keep Andrew Mason, its founder and CEO. That decision led to a recent decline in stock, as the market punished the company for not removing its chief. The company has promised a profit for the quarter that just completed. Will this be enough to impress investors? That remains to be seen.

 

What is certain is that Groupon has had a hard time with competition from the likes of Google. LivingSocial, which is still a privately owned entity, was its first really serious rival. Even Amazon (NASDAQ: AMZN) is getting into the deal of the day game and poses a distinct threat to Groupon. At this point, the company cannot hope to keep up with the financial clout of competitors such as Google and Amazon. In 2010 internet giant Google reportedly offered between $5 billion and $6 billion for the business. Groupon declined the offer, opting instead to go public.

 

The bottom line is there are now much more attractive girls at the party. Anyone can offer the same service as Groupon and the larger companies can do it while consumers cruise their websites. Groupon, which experienced phenomenal growth in its first three years has not just leveled out, it is crashing. IPOs, which are attractive investments to many people, are not always the best way to go. Investors hoping to get in on the new Microsoft (NASDAQ: MSFT) at rock bottom prices will always look at IPO investments as worth the risk. Groupon is a lesson that what glitters is not always gold.

 

 

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